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CIRCULAR No. 49/1999/TT-BTC OF MAY 6, 1999 GUIDING THE IMPLEMENTATION OF THE VALUE ADDED TAX LAW FOR FINANCIAL LEASING ACTIVITIES

Pursuant to the Value Added Tax (VAT) Law No. 02/1997/QH9 of May 10, 1997;

Pursuant to the Government�s Decree No. 28/1998/ND-CP of May 11, 1998 detailing the implementation of the VAT Law;

Pursuant to the current law provisions on financial leasing and the particulars of the financial-leasing property, the Ministry of Finance hereby guides the implementation of the VAT Law with regard to the leasing of such property as follows:

I. GENERAL PROVISIONS

1. Subject to this Circular shall be financial leasing companies and financial leasing enterprises established according to laws (hereafter referred collectively to as the financial lessor) and financial renting enterprises as prescribed by current law provisions on financial leasing, which pay VAT by tax deduction method.

2. The financial leasing property is the property used by the financial lessor for the financial leasing services. This property is imported or procured domestically. For the imported property, the financial lessor shall be the payer of VAT thereon. For the property procured in the country, the financial lessor shall pay VAT indirectly through the payment for the purchase of the property. The financial leasing services prescribed by law are the medium- and long-term credit services on the basis of financial leasing contracts between the financial lessor and the financial lessee. Financial leasing revenue not liable to VAT shall include proceeds from the financial leasing, fee of commitment to use capital, the repurchase value (in cases where the lessee repurchases the rented property at the end of the leasing term at the nominal price).

3. The VAT on the financial leasing property already paid by the financial lessor shall be gradually repaid by the lessee on the basis of the financial leasing contracts.

4. This Circular shall not apply to common property leasing services.

II. SPECIFIC PROVISIONS

1. For the lessor:

a/ The financial lessor shall be the non-payer of VAT for the financial leasing services, and the VAT on the purchased or imported leasing property already paid by the lessor shall be gradually repaid by the lessee and the lessor shall have to fully observe the following regulations:

- The property bought by the financial lessor for lease must have the added value invoice or vouchers on the VAT payment for the imported goods according to the provisions of law.

- The financial leasing contract shall have to clearly prescribe the rent, VAT, the total payment, the leasing term and the payment cycle.

For property imported by the lessor for financial leasing, which is on the list of commodities not liable to VAT, the lessor shall not have to pay VAT on such import goods.

b/ The financial lessor, when providing financial leasing services, may use the following vouchers:

- The financial lessor shall issue the financial service invoice which must include all the prescribed contents and be registered for use after the General Department of Tax issues the written approval. The invoice shall be issued according to payment time prescribed in the contract (possibly monthly or quarterly); but to simplify the invoice-writing procedures, the lessor may gather invoices for writing twice a fiscal year (in June and December every year or at the time the ownership is transferred).

- When filling the financial leasing invoice, the lessor shall have to fully inscribe all elements stipulated on the invoice. Particularly the VAT column (the current period) is determined according to the principle of equal distribution of the VAT amount already paid on the leasing property for the whole leasing term.

Example: Financial leasing company A leases its property to enterprise X with the tax amount of 360 million VN dong written on the added value invoice. Presumably:

+ The leasing term according to the contract: 3 years, from February 1, 1999 to February 1, 2002.

+ The payment cycle: On the first day of every month.

So, the VAT calculated every month is 360,000,000 VN dong : 36 months = 10,000,000 VN dong. The financial leasing company A shall write in invoice issued for enterprise X the VAT amounts as follows:

Period 1: In June of the first year, the to-be-deducted tax amount for 5 months (from February to June) is:

10,000,000 VN dong x 5 = 50,000,000 VN dong.

Period 2: In December of the first year (1999):

10,000,000 VN dong x 6 = 60,000,000 VN dong.

Period 3: In June of the second year:

10,000,000 VN dong x 6 = 60,000,000 VN dong.

Period 4: December of the second year (2000):

10,000,000 VN dong x 6 = 60,000,000 VN dong.

Period 5: June, the third year:

10,000,000 VN dong x 6 = 60,000,000 VN dong.

Period 6: December, the third year (2001):

10,000,000 VN dong x 6 = 60,000,000 VN dong.

Period 7: January 2002:

10,000,000 VN dong x 1 = 10,000,000 VN dong.

Accumulated total (36 months) 360,000,000 VN dong.

- When the financial leasing service invoice is issued, the following principles must be followed:

+ The purchased leasing property must have added value invoice or voucher on the VAT payment, which must be equally distributed according to the above-mentioned regulation.

+ The total VAT amount written in the financial leasing service invoice of the lessor must be compatible to the amount of money written on the added value invoice or the VAT payment voucher when the leasing company purchased the property.

+ In cases where the property is purchased without VAT, added value invoice or VAT payment voucher as prescribed by law, the VAT must not be written in the financial leasing service invoice.

2. For the lessee:

Apart from the payment of rent, the lessee shall also have to pay VAT which has already been paid to the property supplier by the lessor. On the basis of the invoice issued by the lessor, the lessee shall account the VAT amount paid to the lessor into the tax deduction account.

3. The provisions on management of invoices and receipts:

a/ The lessor shall have to manage the added value invoices when purchasing the property which is used for lease. In cases where the lessor directly imports goods, it shall have to manage the receipts on the payment of VAT for the import goods (if any). These vouchers shall be transferred to the financial renting enterprises after the VAT amount is fully deducted and the ownership is transferred to the lessee at the end of the financial leasing contract.

b/ Where the lessee fails to perform the contract thus leading to the property recovery by the lessor : The lessor shall have to send a notice to the lessee, clearly stating the VAT amount already paid and the VAT amount not yet paid. Such notice is made in 03 copies: 1 sent to the lessee and 2 kept by the lessor. Where the financial leasing of this property is continued, the lessor shall keep one copy while the other sent to the lessee. Under the new leasing contract, the VAT amount not yet paid by the former lessee shall be paid by the subsequent lessee and accounted into the tax deduction account. The method of issuing invoices is similar to that prescribed at Point b, Item II.1 of this Circular.

Where the financial lessor refuses to lease the property to the third party in the form of financial leasing but sells it, it must pay VAT and issue the added value invoice according to the provisions of law.

c/ Where the financial leasing contract stipulates that the lessee only rents part of the property value then repurchases such property, the lessor shall manage the leasing property purchase receipts till the procedures for selling the property are carried out. The remaining VAT amount (the tax amount on the invoice minus (-) the paid tax amount) shall be further deducted like in the cases where the fixed asset is directly purchased with the input VAT.

The vouchers required from the lessee enterprise for VAT deduction when repurchasing the property include: The added value invoice when the property is purchased (domestically) or the VAT payment document (imported) transferred from the lessor, the financial leasing service invoice by the time the lessee repurchases the property. The VAT amount to be further deducted when the lessee repurchases the property by mode of financial leasing is equal (=) to the VAT amount written on the invoice transferred by the lessor minus (-) the paid VAT written on the financial leasing service invoice (Item 3, Column: Accumulated).

d/ In cases where, under the financial leasing contract, the lessor and the lessee jointly purchase the machinery and equipment then the lessor only collects rent (the principal and the interest) corresponding to the amount of its capital contributed to the purchase of machinery and equipment, the invoice on the purchase of the leasing property shall be managed by the lessor till the ownership over the property is transferred to the lessee. The VAT amount corresponding to the amount of capital contributed by the lessee shall be calculated into the invoice on the first collection of money, issued by the lessor.

e/ Where the financial leasing contract has been fulfilled and the VAT amount has been fully paid by the lessee and the two sides agree to continue the leasing, the issuance of financial leasing service invoice shall not reflect VAT.

4. Handling of violations:

To strictly prohibit the taking advantage of the form of financial leasing to cause losses to the State budget. All acts of violating the provisions of this Circular shall be handled according to the Law on Value Added Tax as well as the current legal documents.

III. ORGANIZATION OF IMPLEMENTATION

This Circular takes effect 15 days after its signing but is applicable to contracts signed from January 1, 1999. Other issues not guided in this Circular shall comply with Circular No. 89/1998/TT/BTC of June 27, 1998 of the Ministry of Finance guiding the implementation of the Government�s Decree No. 28/1998/ND-CP of May 11, 1998 detailing the implementation of the VAT Law and other legal documents guiding the amendments and supplements to the current VAT Law.

If any problems arise in the course of implementation, organizations and individuals are requested to promptly report them to the Ministry of Finance for study and settlement.

For the Minister of Finance

Vice Minister

PHAM VAN TRONG